While Kim Dotcom continues to fight his Megaupload copyright case in New Zealand and the United States, a new academic study concludes that “the closing of a major online piracy site can increase digital media sales, and by extension we provide evidence that Internet movie piracy displaces digital film sales.”

On Wednesday, Brett Danaher and Michael D. Smith, professors at Wellesley College and Carnegie Mellon University (CMU) respectively, published a paper on the well-known Social Science Research Network. (The paper has not yet been peer-reviewed, nor published in an academic journal.)

Smith is also the co-director of the Initiative for Digital Entertainment Analytics at CMU, which is funded by the Motion Picture Association of America (MPAA).

The pair write:

Controlling for country-specific trends and the Christmas holiday, we find no statistical relationship between Megaupload penetration and changes in digital sales prior to the shutdown. However, we find a statistically significant positive relationship between a country’s Megaupload penetration and its sales change after the shutdown, such that for each additional one percent pre-shutdown Megaupload penetration, the post-shutdown sales unit change was 2.5 percent to 3.8 percent higher, suggesting that these increases are a causal effect of the shutdown.

Aggregating these increases, our analysis across 12 countries suggests that, in the 18 weeks following the shutdown, digital revenues for these two studio’s movies were six to 10 percent higher than they would have been if not for the shutdown.”

Surprise: content industry loves the study

The MPAAs spokesperson, Howard Gantman, told Ars that shutting down a site like Megaupload “won’t solve the piracy problem on its own.” He did call such tactics “necessary and vital,” adding that they help “foster a playing field where legal services can thrive, enabling the movie makers to distribute their creative product in more new and innovative ways every day.”

Cara Duckworth, a spokesperson for the Recording Industry Association of America (RIAA), told Ars that the organization also applauded these findings.

“It’s another sign that protecting rights moves the needle. We’ve seen indication of this time and time again, more recently from the LimeWire shutdown that resulted in a decrease in peer-to-peer piracy and a simultaneous increase in digital sales,” she wrote in an e-mail. “That’s real money in the pockets of artists and creators.”

Danaher, Smith, and two other co-authors had previously authored a related paper on the French anti-piracy regime, Hadopi back in 2012. This research concluded that “HADOPI caused iTunes song and album sales to increase by 22.5 percent and 25 percent respectively relative to changes in the control group.”

Today, Danaher told Ars that there’s been surprisingly little evidence illustrating the before and after effects of shock events, such as the introduction of Hadopi, the shutdown of Megaupload, and the recent introduction of the Copyright Alert System (also known as “six strikes”). Danaher acknowledged that piracy will likely never be completely eliminated (nor is it desirable to, from a public policy perspective, due to prohibitive costs). However, he said that paid content is not only competing with free pirated content (on BitTorrent) but also with free but legal content (think Hulu, for example), saying that this was only “half the story.”

“The other way of attacking the issue is this: you can consider making sure the free illegal good [is mitigated],” he said.

“We think that what we’re showing, which is some sort of policy, showing that making piracy more inconvenient, [is] effective. But, an Ars Technica reader, much like a commenter on a TorrentFreak blog post, could say that ‘If you shut down Megaupload, I know how to get it elsewhere.’ You have to remember you’re reading a very specific tech blog. If you tell me that piracy of a bunch of other cyberlockers went up, I believe that. If you tell me that VPN use is going up, I would buy that. But there are people who aren’t TorrentFreak readers or Ars readers but are pirating in some way, and when you make content harder to get, [they turn away]. Are there some people that are now thinking, ‘Where do I get that in a reliable, malware-free way, and turn to legal channels?’ Yes. Our study says that there are enough to increase revenues by the amount that were estimated.”

Could lack of legal content explain high piracy rates?

The study specifically looks at the Megaupload penetration rate (Megaupload users divided by all Internet users in a given country) across 12 countries around the world in December 2011, one month before the notorious site was shut down. It also looks at sales data “provided by two major US movie studios” for “all digital purchases and rentals through their major digital channels aggregated at a weekly level from September 2, 2011 until May 31, 2012.”

The authors did not disclose the names of these studios, nor did they explain why this info needed to be kept confidential. In the study, the social scientists also normalized digital sales rates (taking into account spikes from release of blockbusters and the end-of-year surge).

While the United States represented by far the greatest single market of Megaupload users in the study, it was relatively low by percentage—just two percent. Meanwhile, nearly 17 percent of Spanish Internet users visited Megaupload or Megavideo.

“This is consistent with what was suggested by the scatterplots: post-shutdown sales increased more in countries with higher [Megaupload penetration rates] than in countries with lower MPR’s,” the authors write.

Given the fragmented nature of the European Union content market—despite efforts to create a truly singular “digital single market”—it’s still true that content availability varies significantly across the soon-to-be 28-member block. For example, the iTunes Stores in Austria, Spain, and Denmark still do not have TV show availability, while Latvia, Belgium, and Germany do.

Danaher conceded that part of why Megaupload usage may have been noticeably higher in Spain (when compared by percentage to the United States) was the relative lack of legal alternatives for Spanish-language and English-language content in a timely and easy-to-access fashion.

Last year, a related paper published by two European researchers concluded in its abstract: “[the Megaupload shutdown] had a negative, yet insignificant effect on box office revenues.” However, that paper provides scant evidence as to its methodology.

“I don't want to be offensive to these authors,” Danaher said. “I wouldn’t call it a paper at this point, it’s [three] pages describing their results without describing their methodology. They say ‘We did some work, we had a control group of unaffected movies.’ It’s not really a paper—it's a description of results without the methodology. They could be right, but I don’t know because there’s no way to evaluate it.”

UPDATE March 14, 2013: When Ars asked Danaher to explain the relationship between their work, IDEA and the MPAA, he responded this way:

Neither Mike nor I received any money from anyone for this study. Our salaries are paid by our universities and in return we do what we are trained to do—publish objective research. If we were ever found to be biased, it would actually be terrible for our careers and our universities would never encourage that.

The study itself also required no funding. However, the data were acquired through IDEA (which you linked), an academic research center at CMU which is funded in part by an unrestricted gift (e.g., no qualifications) from the MPAA. Without IDEA, we would not have access to private corporate data that allows us to answer questions that others can't.

Some people have questioned the source of the data, saying that even if we are honest academics the studios could have tampered with the data before giving it to us. I have a blog post and if you don't mind that it's a bit longer than a tweet, it actually shows how unlikely it is that the data could have been manipulated to get our results. It also explains in layman's terms why we use causal language despite the old axiom that 'correlation is not causation.' I honestly think it's worth a read and pretty compelling.

Well, the fact that they don't show their actual methodology means there's no real proof they didn't simply make up their numbers, or doctor the results in some way to give the results they wanted to find.

So they only looked at data from September to May and that's indicative of a trend? Wouldn't it make more sense to take a larger sample of before and after to see if this wasn't an anomaly? Why didn't they look at the sales data for a year before it was shut down and a year after? With such a small sample size I question the validity of their results. Heck it would have made more sense if they compared the same time period before and after...

Yes but pro-piracy people can never admit that they are doing wrong, because that would mean that, in fact, they have been hurting people, and thus, by extension doing evil.

On the other hand, a lot of the logic that anti-piracy groups use is just foolish. Representing piracy as lost revenue- as if it were money that would have otherwise gone into their pockets- is pretty much nonsense. It seems obvious, at least to me, that many people who pirate will download the content when it is free to them, but they would never actually pay for it. It's not necessarily justifiable, but to call pirating blockbusters "doing evil" is a laughable mischaracterization in my eyes.

Now, if you claimed the MPAA was "doing evil" in various ways, I would wholeheartedly agree with you, but that's a topic for another time.

Where's the paper showing how many movies were even available on a legitimate service prior to that date and after?

My recollection seems to be that even not long ago, studios were still haggling over licenses with iTunes and Netflix and the rest for anything worth watching, and you couldn't get it officially even if you tried.

Not all of these movies (and TV shows) are available in every market around the world in a legal, digital format.

This is not a justification for piracy.

It is a RATIONALIZATION for piracy.

It is still wrong.

Watching Thor is a priviledge, not a right.

Chuckstar wrote:

In other words:

People prefer not to pay for things when they don't have to. Details at 11:00 pm.

Yes but pro-piracy people can never admit that they are doing wrong, because that would mean that, in fact, they have been hurting people, and thus, by extension doing evil.

Carbon Fibre wrote:

How much traffic was Megaupload sharing movies before shutdown? Perhaps not much enough to impact revenue. I call bs study endorsed by MAFIAA.

MU was one of the top sites on the internet prior to its death. Seeing significant damage done is not surprising.

You don't have to be "pro-piracy" to call bullshit on vacuous argument. Moreover, not everyone calling bullshit is necessarily -doing- anything, much less anything evil.

This kind of guilt by association is a major drag on productive discussion.

The point I think these folks and I are trying to make is, the claim in the paper could easily be flawed simply by overlooking the fact that legitimate availability has increased in the time MU has been shut down, in such a way that people -may- be buying more simply because they -can- now, when they couldn't before. Understandable?

In any event, it is obvious that you're wrong. People don't download tons of stuff they're not interested in; that has never really matched what I have seen of piracy. Rather, people download stuff they are interested in - why would you spend the time downloading something you don't care about?

It is obvious that people DO ascribe non-zero value to said content.

Some years ago I saw a reference that there were many, many of those that downloaded pirated software who tended to download lots and lots and LOTS of it, most of which they never even used. They simply wanted to be able to say, "I have X number of pirated programs..."

Yes but pro-piracy people can never admit that they are doing wrong, because that would mean that, in fact, they have been hurting people, and thus, by extension doing evil.

I pirate games because I've been burned too many times paying $80-$100 or so (I don't live in USA) for a game that turns out to be utter crap. If I like the game after pirating it, I'll buy it. I also buy all the Humble Bundle packs for roughly $10 a pop to support the business model even though I don't play the games. It's not black and white, good vs evil.

How is it that you can still get more content, in better quality, faster, illegally than you can legally? If the MPAA/RIAA/etc would put the millions they funnel into fighting 'piracy' towards content delivery services, with truly global distribution, they might get a better return on their money than a few percent for a couple of months. It's just good business sense.

Yes but pro-piracy people can never admit that they are doing wrong, because that would mean that, in fact, they have been hurting people, and thus, by extension doing evil.

On the other hand, a lot of the logic that anti-piracy groups use is just foolish. Representing piracy as lost revenue- as if it were money that would have otherwise gone into their pockets- is pretty much nonsense. It seems obvious, at least to me, that many people who pirate will download the content when it is free to them, but they would never actually pay for it. It's not necessarily justifiable, but to call pirating blockbusters "doing evil" is a laughable mischaracterization in my eyes.

Now, if you claimed the MPAA was "doing evil" in various ways, I would wholeheartedly agree with you, but that's a topic for another time.

These studies prove that you're wrong.

In any event, it is obvious that you're wrong. People don't download tons of stuff they're not interested in; that has never really matched what I have seen of piracy. Rather, people download stuff they are interested in - why would you spend the time downloading something you don't care about?

It is obvious that people DO ascribe non-zero value to said content.

These studies are now fact? I thought it said the methodology was not revealed? Far from fact in my mind.

I would like to see a comparison against the use of bitorrent at the same time. My gut feeling is people who won't/can't afford buying a movie just switched methods to get it elsewhere. Also interesting would be to see how this compares against studio's own improvements done on providing customers with digital access and timely worlwide releases.

I live outside of the US and I can definetly see improvements with better access to import media and better release dates (sometimes weeks before the USA date).

In this digital age, restricting access to digital content by means of physical media, regionalization or high prices is the gun used by media companies to shoot themselves in the foot.

I wonder what the requirements to even get the data. Besides how its vetted or the methodology involved. But is anyone surprised? Media companies release to the media results that support their position. In other news the American association of tall men release results indicating taller men are better lovers and fathers.

How is it that you can still get more content, in better quality, faster, illegally than you can legally? If the MPAA/RIAA/etc would put the millions they funnel into fighting 'piracy' towards content delivery services, with truly global distribution, they might get a better return on their money than a few percent for a couple of months. It's just good business sense.

Totally agree. Also, the asking prices for current offerings are absolute rubbish - usually it costs *more* than the equivalent DVD, without DVD extras or commentary tracks (which I personally love) and at a noticeably lower quality. All of which I have the privilege of using a substantial amount of my internet quota to obtain.

So they only looked at data from September to May and that's indicative of a trend? Wouldn't it make more sense to take a larger sample of before and after to see if this wasn't an anomaly? Why didn't they look at the sales data for a year before it was shut down and a year after? With such a small sample size I question the validity of their results. Heck it would have made more sense if they compared the same time period before and after...

I'm going to take a stab at answering your question. It all has to do with what their initial question was. If the hypothesis was, "if you take away one of the most popular piracy avenues people will start paying for the content." The longer you go out the more confounding variables you start introducing. I.e. different sites become better known. The raid on dotcom has a lot of... complications... that may turn people against media companies etc. That's just my guess.

Well, the fact that they don't show their actual methodology means there's no real proof they didn't simply make up their numbers, or doctor the results in some way to give the results they wanted to find.

Where did you get this "fact" from? I haven't read the paper in detail, but at a glance it does go into detail about their methodology. Looks like it isn't them who's simply making stuff up.

Lack of methodology provides no way to verify their claims. Thus the study cannot be peer reviewed or proven to have any validity. This is true for any study, in any field. Their disclosed small date range and their undisclosed number of controls point to cherry picked data. Month to month comparisons are useless. At the very least the comparisons would need to show trends of the same month from previous years.

Yes but pro-piracy people can never admit that they are doing wrong, because that would mean that, in fact, they have been hurting people, and thus, by extension doing evil.

If what people are downloading isn't available to them at all, how is downloading hurting anyone?

When people are saying, "Here's my money, take it already.", and studios are refusing, I really have no sympathy for these so called losses due to piracy. You can't lose money on something you're not selling.

Vague methods of controlling for data over such large amounts - 2.5% sounds like a margin of error.

Not to mention they should be controlling for ratings differences during the period too. If this period had releases with higher rating than the previous period it would make sense that sales would be higher. I'm sure there are other nuances which would need to be accounted for too before anything is "proven".

Well, the fact that they don't show their actual methodology means there's no real proof they didn't simply make up their numbers, or doctor the results in some way to give the results they wanted to find.

Where did you get this "fact" from? I haven't read the paper in detail, but at a glance it does go into detail about their methodology. Looks like it isn't them who's simply making stuff up.

I was referring to the last paragraph of the article here that pretty much said as much, but I now see it says that was about an earlier paper from the same bunch. That said, unless the paper provides ALL the data in a form where someone can independently examine it, it will be highly suspect regardless of what the numbers say.

Isn't 3-4 % the natural growth rate, or close to it, for the industry? After all, the movie industry posts record incomes from the box office every year. I wouldn't be surprised if the MU take down had actually NO affect on movie sales.

Ummm... has the popularity of streaming services like Netflix been taken into account before delivering these "dramatic" figures? It's no fair to consider MegaUpload's impact in a complete vacuum, when you also have The Pirate Bay, etc. along with streaming services that provide serious value relative to buying everything on disc. Shock, surprise -- watching "Enough" on Netflix once was "Enough" and I felt zero desire to buy the DVD. Horrible for their bottom line, I know, but that's reality for you

Yawn .... Piracy is a response to the monopoly that is the MPAA. Give people reasonable alternatives and they will most certainly take them. Shutting down Megaupload may work for a little while, but unless the underlying causes are solved, they are just gonna resurface. You cannot police the internet, consumers are not your enemy, get that into your thick skulls

So they only looked at data from September to May and that's indicative of a trend? Wouldn't it make more sense to take a larger sample of before and after to see if this wasn't an anomaly? Why didn't they look at the sales data for a year before it was shut down and a year after? With such a small sample size I question the validity of their results. Heck it would have made more sense if they compared the same time period before and after...

I'm going to take a stab at answering your question. It all has to do with what their initial question was. If the hypothesis was, "if you take away one of the most popular piracy avenues people will start paying for the content." The longer you go out the more confounding variables you start introducing. I.e. different sites become better known. The raid on dotcom has a lot of... complications... that may turn people against media companies etc. That's just my guess.

I can see that as a justification in that there would be more variables to account for it they looked at a larger dataset. But their contention is that shutting down MU caused a sizable sales increase. If they wanted to prove that, why didn't they compare the same time period? I wouldn't compare the number of tickets issued at the end of Feburaury versus the beginning of January and then state that the data shows a trend. That's like saying there are more people who register for license plates at the end of the month versus the beginning of the month.

I pirate games because I've been burned too many times paying $80-$100 or so (I don't live in USA) for a game that turns out to be utter crap. If I like the game after pirating it, I'll buy it. I also buy all the Humble Bundle packs for roughly $10 a pop to support the business model even though I don't play the games. It's not black and white, good vs evil.

This is, again, a rationalization.

You DON'T have the right to do this. Only new games are $80-100; older games are less expensive. Even I don't usually buy new games. You don't -have- the right to new games. Or any games at all.

Indeed, by doing this you prove your lack of morality. You claim "Oh I do this for X or Y", but the truth is that ultimately, it is because it is free and you don't think you're likely to be caught or punished. The rest is just rationalization layered over it.

TD: Actually morality IS a rationalization. Gigaplex defines how he views the world. Just because his morals don't line up with yours, doesn't mean he is wrong or evil. I could consider you evil and morally wrong because of the way you treat other posters on these forums. That doesn't make me automatically right. You need to get off your high horse and take a wider view of the world, at least IMHO.